S&P 500 Futures Fall as $90 Oil and Fed Rate-Hike Bets Hit Markets

On August 31, Brent crude rose above $90 a barrel after renewed U.S.-Iran hostilities and traded near $90.60. S&P 500 futures fell about 0.4% and Nasdaq 100 futures declined roughly 0.5%, according to MC Markets.

Market participants increased their bets on a September Federal Reserve rate hike as they reassessed Fed policy.

Swissinfo, citing Bloomberg, reported that stocks and gold were pressured as oil gained and traders raised their rate-hike bets.

Brent crude tops $90 as U.S.-Iran hostilities renew

Brent crude rose 2.5% to $90.25 per barrel on August 31 following renewed U.S.-Iran hostilities, then traded near $90.60.

S&P 500 and Nasdaq 100 futures moved lower, indicating a weaker start for equities, while markets reassessed Federal Reserve policy amid the rise in oil prices and increased expectations of a rate hike.

September Fed hike odds jump to 57%

Market-implied odds of a 25-basis-point rate increase at the Fed's September 16 meeting climbed to about 57% on August 31, according to the CME Group's FedWatch measure. That was up from roughly 35% before Fed Chair Kevin Warsh's Jackson Hole remarks.

The repricing gives the next scheduled policy decision a clear market focus. A 25-basis-point increase would represent a further tightening response as policymakers confront inflation that remains above target.

Warsh's 3.7% PCE inflation warning

Warsh said on August 28 that inflation remained above the Fed's 2% objective, citing 12-month PCE inflation of 3.7%. In his remarks published by the Federal Reserve, he said the central bank's predominant focus should be on prices.

Those comments had already moved rate expectations before the oil rally added another inflation-sensitive development to the market's calculations. The combination left futures lower as traders adjusted both energy and Fed-policy assumptions ahead of the September 16 meeting.

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